Commentary

The Truth Be Known

Several months ago I received a call from a packaged goods manufacturer among the top Fortune 500 Companies, asking me what I believed were some of the important changes that have taken place in media
during the last 10 years. By media, they meant media companies, media agencies, and advertiser media operations.

The purpose was to decide whether or not to set up a corporate media
operation to manage all of their multiple brand divisions and, if so, how it might be structured. They felt that they could learn from the past experience of others.

We spent almost three
hours on the phone during two separate sessions. While it is impossible to record most of what we talked about in an article like this, I can relate just a few salient points that I think have had an
important impact on the media business. Sadly, some of them worry me quite a bit.

1. I remember many years ago, the real Media Directors had experience in all media. They grew up also doing
planning and buying. By the time they were ready to take on the leadership of a media operation, they understood the strategic process as well as media execution and, also had a very in-depth
knowledge of media research as well. Many, in fact, participated in the development of original research to learn more about the effects of communication.

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Now we have so-called specialist
groups for the implementation of each medium. Obviously, media buying is more complex today, with many more options, so a certain level of concentration is necessary. But, the structure isn’t optimal
if it doesn’t allow for integrated multi-media planning and buying. Unfortunately, to a great extent, that’s what’s happened. Buyers are specialists in broadcast buying, print buying, outdoor buying,
interactive buying, and so forth. But very few agencies have created an effective, collaborative infrastructure to make it all work cohesively.

2. Today there are few research initiatives and
many are not supported by all segments of the industry. The media associations do their thing, but often narrowly focused and usually without consulting the buying community; the agencies now do very
little if they have to pay for it and the leading syndicated research organizations find themselves in the middle between buyers and sellers trying to get consensus for changing methodologies or
adding new dimensions. Many of these initiatives never get through or are never fully utilized because of self-interest and cost (who gets the most out of it and who pays the largest share). So the
advertising industry is often disadvantaged by a lack of knowledge to move forward.

3. For many consumer products the marketing environment has changed dramatically. Line extensions
proliferate, store brands emerge in almost every category, shelf space is at a premium and products have shorter life cycles. The retailer is in much more control now than manufacturers yet very
little media strategy is adequately addressing the relationship between retailer and manufacturer. So a lot of marketing funds just aren’t being applied to effective media communication.

4. I
hate to say it, but media consolidations have yet to bring a lot of advantages to the table for advertisers. Yes, there is more volume in play and so media companies can offer more assets and agencies
can yield greater “clout.” But, neither works very well if the media company hasn’t established a “marketing solutions” infrastructure and the agency hasn’t created a collaborative environment. If a
large manufacturer is already in the $100 million plus advertising range they can probably accomplish a great deal on their own. And, as far as media efficiency is concerned, there is a point at which
individual media would rather not sell any more inventory to huge media agency behemoths at rates well below market. The reality is that once a certain level of volume is achieved, you don’t have to
go much higher to gain a disproportionate amount of additional influence.

5. Agency compensation is still an ongoing issue for many advertisers. Yes, there are more financial models today
including commission, fees, incentives, pay for performance, etc. But when compensation is measured against agreed upon benchmarks, advertisers must still watch closely because many agencies also look
for the opportunity to amortize their overhead costs, and it is often the big clients who are subsidizing the small ones. While agencies and clients talk about incentive compensation, not too many
have figured out the most equitable way of doing it. For example, some agencies will agree on incentives if they are provided above and beyond a retainer based on costs plus a margin for profit. The
risk, however, should be balanced against the reward. Less margin upfront, higher incentive opportunity; more margin built-in, less upside on incentive. You get the idea.

OK. I’ve said enough
for now. I imagine a lot of irritated recipients will respond to this. And you know what? That’s fine if it helps bring some of these issues out into the open and we can resolve them to the
satisfaction of all parties. Maybe then we’ll have real long term relationships among advertisers, agencies and the media and clients won’t have to think about doing it better on their own.

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Michael D. Drexler is Executive Vice President at Mediasmith, Inc. an integrated Interactive Media planning and
buying company. During his 41 years in advertising he has been Media Director of Ogilvy, DDB and FCB as well as Chairman of TN Media.